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TMI Blog1984 (10) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... d Shri Gupta as the constituted attorney to supervise the business of the assessee-company as well as M.G.M. (Calcutta) Ltd. 4. On 26-9-1974, Shri Gupta was detained under the Maintenance of Internal Securities Act. The detention order was challenged in the Bombay High Court. By their order dated 30-11-1974, the High Court held that the detention order was bad in law. 5. Shri Gupta was again detained for the second time on 1-7-1975 under COFEPOSA Ordinance. This detention was also challenged. It appears that Shri Gupta had incurred total expenses in conducting the hearings amounting to Rs. 3,66,174. 6. Shri Gupta got in touch with Tramarsa and had made a request to them that he should be reimbursed in respect of the legal expenses incurred by him. On 4-3-1976, Tramarsa wrote to him that his request had been considered by the board of directors of Metro Theatres and that the board had decided that the company should bear and pay to him the legal expenses that were incurred in that matter. Accordingly, the assessee-company had paid to the solicitors engaged by Shri Gupta, an amount of Rs. 3,53,033 in the course of March 1976 to July 1976. 7. In the assessment for the year, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the acquisition of the properties of Metro was only one of the five charges against Shri Gupta. He also pointed out that Shri Gupta was neither an employee nor a director nor a shareholder of the company. There is no nexus between him and the assessee-company. He is only a constituted attorney of the holding company. He submitted that on the facts shown, no nexus has been established between the expenditure incurred and the business of the assessee. He also pointed out that the assessee-company had not received any notice from the Government nor had they associated themselves in the litigation. Only after the litigation is over, that Shri Gupta requested for the reimbursement. There is not even a remote connection with the assessee's business. 10. We have considered the facts of the case. The principle involved in deciding whether the legal expenses incurred by a company are allowable or not, is fairly well settled. The case laws on the point have all been catalogued by the Calcutta High Court in the case of Albert David Ltd. v. CIT [1981] 131 ITR 192. The principle called out from these case laws is that the expenses should be for protecting the business of the assessee-company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Swiss company Therefore, the charge of the Government against Shri Gupta is that the Swiss company ' Tramarsa' is only a benami of Shri Gupta. If the litigation had gone unchallenged, the result would be that Shri Gupta might be stripped of his holdings in Tramarsa. That would not affect the property of the assessee. It is well settled in law that a company is different from shareholders. The shares of a company may change hands, but the company's existence would not be affected by the change of the shareholders. The right of the shares being the same, it is immaterial whether at any given point of time shares are held by one individual or the other. That would not affect the business assets of the company or the conducting of the business of the company. 12. A direct authority on this point is the decision of the Calcutta High Court in Albert David Ltd.'s case. Therein, there was a litigation between two groups of shareholders regarding the ownership of certain shares. The company was also impleaded. One group of shareholders owed the company's certain funds. The company was impleaded and the expenses were claimed by the company as business expenditure, on the ground that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company. The Bombay High Court held that such an expenditure incurred was not for preserving the fair name of the company. It was only for the purpose of saving persons, who were charged with mismanagement. The High Court observed : " What we have to consider in this case is whether preventing the investigation of the affairs of the assessee-company pursuant to a report made by the Registrar of Companies was a step taken honestly and reasonably to promote the interest of the business of the assessee-company. The assessee-company could well have preserved its fair name by proving to the investigator that so far as the affairs of the company were concerned, they were clean and untarnished, but instead of doing so, ostensibly with the object of screening the persons who were guilty of mismanagement of the affairs of the company the proceedings were adopted which ultimately failed. Such expenses could not, therefore, be regarded as expenses incurred for promoting the interest of the business of the assessee-company and have been rightly disallowed by the taxing authorities and the Tribunal." On the above principles, it would be seen that the expenditure involved has nothing to d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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